$A higher on expectations of US resolution

The Australian dollar was pushed higher on Friday as negotiations between Democrats and Republicans in the United States raised the odds of a resolution on the debt ceiling but the US government shutdown dragged on.

The shutdown, and the US Federal Reserve’s stimulus of the US economy, are now the key issues affecting ­currency markets.

Morgan Stanley head of Asian forex Geoffrey Kendrick says the shutdown drags down the US dollar, pushing up the local currency. “We depict the shutdown as being USD-negative – it hurts US growth and increases likely Fed stimulus," Mr Kendrick said.

The dollar was trading at US94.7¢ on Friday afternoon, a level higher than its average over the preceding three months.

The Fed is pumping $US85 billion a month into markets in an attempt to spur activity. So long as that stimulus continues the Australian dollar is likely to remain higher.

Local strategists say the Australian dollar is lifted more by the stimulus than it is hurt by lower US growth. FXCM market analyst David de Ferranti said Fed policy could continue to “keep the AUD/USD supported above the US94¢ figure in the near term".

But a higher Aussie crimps domestic growth and could bring about its own end by forcing a rate cut. Bank of America Merril Lynch said the high Aussie would potentially tip the balance in favour of rate cuts.

“The rebalancing of growth has therefore not progressed to any ­significant extent and the RBA will need to stand ready to support this process if the $A remains elevated and if business confidence wanes," analyst Alex Joiner told clients in a note.